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Mangala’s Economics

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I found Karma inexplicable that such an effective Politician was not only taken away prematurely, but we were also denied the right to pay our respects as well.

In recent times, as Foreign Minister he ensured that our International relations were at their best ever.

His period as Finance Minister saw us register with long overdue financial discipline, two consecutive years of primary revenue surpluses in 2017 and 18, for the first time after over fifty years .

In a brief stint as Sports Minister he inspired Vijay Malalasekera’s Interim Committee to such an extent that we recorded our most successful years in International Cricket, with Integrity unquestioned !

Above all he was a very decent, humble, honest and civilised human being and was blessed in consequence with a Midas touch as his tenures will confirm.

We can all stand proudly and say “Here indeed was a true Statesman”

So Let us console ourselves that fate took him prematurely, to enable an early rebirth through his good Karma, and a path thereafter in Politics that will see him as the Head of State of a New Sri Lanka within forty years !

A prosperous era when educated Parliamentarians will adorn that revered Institution, with Country,, ALL its people and self in that order as their priorities and a Parliament that will conduct its affairs with dignity making its people truly proud

“Mangala” deserves that posthumous reward.

In the Interim Dear Sir, Rest in Peace.

A Grateful Citizen

 

by Deshal de Mel

When Mangala Samaraweera took over the Finance Ministry portfolio in May 2017 Sri Lanka was preparing to face some of its most challenging years in macroeconomic management. 2018 was the year that the government had to make its highest ever domestic debt repayments (LKR 922 billion in capital repayments of domestic debt. For context, in 2020 the domestic debt capital repayment was LKR 456 billion). In 2019 Sri Lanka had to make its highest ever foreign debt repayments (LKR 575 billion foreign capital repayments in 2019. In 2018 the foreign capital repayment was LKR 315 billion and in 2020 it was LKR 505 billion).

In addition to managing an economy where annual debt service payments (LKR 2,022 billion in 2019) were higher than government revenue (LKR 1,891 billion in 2019), in mid-2017 the country was in the midst of its worst drought in 40 years. Agricultural incomes had been decimated and the economy was also hurting from devastating floods in other parts of the country. The fragile coalition between President Maithripala Sirisena’s SLFP and Prime Minister Ranil Wickremesinghe’s UNF was also beginning to show the first signs of cracks as a two year honeymoon period was over. Amidst these challenges Mangala’s time was largely focused on firefighting these critical issues. That did not stop him from taking on some of the most important macroeconomic reforms during his two year stint as Minister of Finance.

Addressing Sri Lanka’s Fiscal Weakness

1996 was the year that Sri Lanka won the cricket world cup but it was also the last year that Sri Lanka had a government revenue to GDP ratio of over 20% (it was 20.1%that year and was consistently above 20% over many years prior to that). Since then revenue had declined dramatically, reaching a nadir of 11.6% in 2014. This was amongst the lowest government revenue performances in the world. Sri Lanka’s recent public expenditure ranging between 17% and 20% of GDP was not high by global standards. As of 2020 Sri Lanka’s government expenditure comprised largely non-discretionary spending including salaries and wages (6% of GDP), interest (6% of GDP), welfare and transfers (4% of GDP). Therefore there is very little room to meaningfully reduce expenditure in a practical manner.

The main causative factor behind Sri Lanka’s consistently high budget deficits was its weak revenue base. Sri Lanka also has an extremely regressive tax structure. As at 2017 approximately 82% of tax revenue was collected as taxes on goods and services and 18% as taxes on income and other direct taxes. Typically taxes on goods and services (indirect taxes) fall disproportionately on the poor. A family would pay the same tax on milk powder regardless of whether their household income is Rs. 50,000 or Rs. 500,000. This was how over 80% of Sri Lanka’s taxes have been collected. This reliance on taxes on goods and services has also contributed to driving up the cost of living as the tax component of prices continues to increase.

Mangala’s simple principle for taxation policy was that the government should wherever possible reduce upfront taxes and costs that disincentivize the commencement or establishment of business. However, once a business is established and profitable, it should pay its fair share in income taxes. This was the opposite to the reality at the time — Sri Lanka’s taxes had hitherto been front loaded into indirect taxes such as cess, PAL, NBT, and VAT — whereas income taxes are low and corporates enjoy a range of income tax holidays. As a result there is typically a high cost of entry into industry and limited competition among established players.

Taxes on incomes have been low for several reasons including open-ended tax holidays, weak collections reliant on self-declaration, and other leakages. The Inland Revenue Act of 2017 was drafted in order to address as many of these issues as possible.

In general the new legislation intended to shift to a rule based tax structure, moving away from discretionary policy which leaves room for leakages and graft. The IRA had important positive impacts on tax collection. Even though the legislation came into effect in April 2018, the full impact of the legislation would only be seen in November 2019 when the 2019/20 filing is completed. The results were impressive. There was a 44% growth in income tax collection in 2019 in spite of major shocks to the economy, tax payers registered with the Inland Revenue Department in 2018 was 986,684 and by 2019 it had increased to 1,505,552. Most importantly, in 2019 the ratio of direct taxes to indirect taxes shifted to 75% to 25% from 83% to 17% in the previous year. Even though marginal, this was an improvement in Sri Lanka’s highly regressive tax structure.

Primary Surpluses

One of Mangala’s key fiscal objectives at MoF was to achieve a primary surplus in the budget. Since independence, Sri Lanka had achieved a primary surplus only in 1954, 1955, and (marginally) in 1992. A primary surplus in the budget occurs when revenue exceeds expenditure minus interest cost. It is the measure of fiscal management that is truly within the control of the Minister of Finance since the past interest cost is payment for past sins. When a primary surplus is achieved it means the government’s revenue exceeds its non-interest expenditure. A primary deficit means the government has to borrow even to finance interest which is undesirable from a debt sustainability perspective. In 2017 Sri Lanka had a primary surplus of Rs.2 billion and in 2018 Rs. 91 billion (0.6% of GDP).

2017 (5.5% of GDP) and 2018 (5.3% of GDP) also saw two of the lowest budget deficits in Sri Lanka’s recent past. In 2016 as well Sri Lanka limited its budget deficit to 5.3% and in 2013 the deficit was 5.4%. However prior to that the only time the budget deficit dipped below 5.3% was in 1977 (4.5% of GDP).

A critique of this achievement is that even though the government had primary surpluses in 2017 and 2018, and the overall debt to GDP decreased in 2017 (from 79% to 78% of GDP), debt to GDP increased to 84.2% in 2018. The reason behind the increase in debt to GDP in 2018 was because of the depreciation of the currency that year due to the global taper tantrum early in the year as the Federal Reserve raised interest rates and the constitutional crisis later that year. When currency weakens, the rupee value of external debt increases, causing the debt to GDP ratio to increase, in spite of the gains made in real fiscal management, which is what can be controlled by the Minister of Finance.

There is also a perception that the decline in GDP growth rates was due to enhanced government revenue measures. However, quarterly GDP growth from Q1 2015 to Q3 2018 averaged 4.3%. This was keeping in line with the average growth levels of 2013 (3.5%) and 2014 (5%). Just as the economy was recovering from the droughts of 2017, this momentum was lost due to the constitutional coup in October 2018 which dragged down Q4 2018 growth to 2.1%. The resulting capital flight and forex reserve sales to defend the rupee resulted in negative market liquidity and higher interest rates that carried on well into 2019, compounded by the Easter Sunday attacks, dragging down 2019 growth as well.

Fuel Price Reform

In early 2018 the hopes of shifting to a market based fuel price formula were fading. This was potentially a major reform given the significant fiscal burden created over the years due to mis-pricing of petrol and diesel and weak balance sheet management by CPC. These factors combined to result in CPC running up debts over LKR 300 billion, mostly placed with the state banks, creating a high-risk fiscal combination. Anchoring retail fuel prices to the global market price (with adjustments for taxes, distribution costs, storage costs, finance costs, and profit margin) would help eliminate additions to the existing fiscal burden of CPC. When global prices rise, the domestic fuel price would rise, when global prices fall, the domestic price would fall. Even if the government chose not to increase retail prices in line with global price shifts, a transparent and publicly available formula would create more visibility on the fiscal costs of such a policy.

Like all challenging reforms, ideally the fuel price formula should have been introduced early in the political cycle, market prices were also trending upwards by 2018. In May 2018 the formula commenced implementation. On the 10th of every month the retail price of fuel will be adjusted to reflect the latest global fuel price (Singapore Platts was the anchor used). The timing could not have been worse, and communication could have been a lot better. Global fuel prices had started sky-rocketing from mid-June and peaked at over US$ 80 per barrel in October from the US$ 50 range leading up to May. Naturally the public associated the fuel price formula with rising prices at the pump. Had the formula been implemented a year prior, the public would have seen prices decline and stabilize prior to increasing. But alas, this was not to be, and the formula was scrapped by the new administration.

Trade Liberalisation

As at end 2019 Sri Lanka’s rank in Trade Openness was 140th out of 141 in the Global Competitiveness Index. In spite of being the first country in South Asia to liberalise in 1977, Sri Lanka’s trade protection levels have increased over the last couple of decades. In the 5 years from 2014 to 2018, the average percentage of government revenue collected at the border was around 49%.

The increased layers of taxes on imports results in three key impediments;

i) These import taxes are a significant burden on consumers. The effective import tax rate of several basic consumption products from milk powder to biscuits goes up to 100%.

ii) Import taxes erode competitiveness as domestic firms receive significant protection from global competition leading to less incentive for innovation and dynamism and thus hinders long term productivity improvements — the true driver of economic growth.

iii) Several intermediate imports have high import taxes — including numerous construction materials. This drives up costs for all industries, eroding competitiveness of almost all Sri Lankan enterprise. It also makes Sri Lanka less attractive a destination for FDI.

In Sri Lanka a lot of border taxes take the form of paratariffs. The standard import duty is customs import duty (CID), however since CID is eliminated in Free Trade Agreements (FTAs) with India and Pakistan, successive Sri Lankan governments have added in layers of paratariffs such as cess and the Ports and Aviation Levy (PAL).

In the 2017 November budget it was decided to commence the elimination of most of these paratariffs. Mangala championed this initiative since he recognized the potential positive implications it would have for the economy in the long term. Some of the treasury officials were less enthusiastic, because there would naturally be a short term revenue loss as a result of removing these tariffs and also because it would result in severe lobbying by protected industries, seeking to retain their walls of protection.

Whilst some in the ministry wanted to see tariffs eliminated almost entirely in a big bang reform move, it was necessary to allow time for domestic industry to adjust to this significant change. It was eventually decided that the best approach would be a five year phase out of most paratariffs. This would make the revenue impact easier to absorb — revenue from PAL and cess amounted to around 1% of GDP. To start with though the 2017 November budget would eliminate paratariffs on 1,200 or so of the least sensitive tariff lines. The impact would not be material, but Mangala felt it would be a robust signal — and also give additional time for industry to make adjustments to the envisaged operating environment. In the March 2019 budget the next phase of para-tariffs was eliminated, and a Trade Adjustment Programme was introduced to provide budgetary support for domestic sector entities that face adverse adjustment costs due to exposure to greater global competition.

Welfare Reform

Another important initiative of the Ministry of Finance under Mangala Samaraweera was the effort to streamline welfare payments. One of the first things Mangala asked me was how we can move away from a system of price controls on essential items to provide relief to the public. He understood that price controls are not sustainable since they are poorly targeted, they tend to result in shortages and erosion of quality when market prices exceed the administered price. And of course they are subject to constant abuse. He was very keen that we look at introducing a system where relief is provided to the needy through cash transfers — his favourite example was Bolsa Familia, Brazil’s cash transfer programme.

Of course this required a robust system of identification and targeting of those who are deserving of such support. This would apply not just to those who were of lower income levels, but also those with disabilities, the elderly and infirm, and those vulnerable to and victims of natural disasters. Sri Lanka’s existing system of welfare distribution, Samurdhi, was woefully inadequate in terms of targeting. Samurdhi had vast numbers of undeserving recipients who benefitted from the scheme and more worryingly, large numbers of deserving citizens who were excluded from the scheme. The World Bank provided technical support in designing such a targeting mechanism and after a lot of work the new targeting criteria was finally gazetted in June 2019. The mechanism consisted of objective, verifiable criteria including education levels, housing conditions, income, electricity consumption, assets, and illnesses. If fully implemented this mechanism of targeting, combined with the use of digital payment systems, would have enabled a transparent and efficient scheme of providing welfare to those who most deserved it, without resorting to the economic inefficiencies of indiscriminate price controls. Unfortunately this initiative too did not make it beyond the election cycle.

Monetary Policy Legislation

Another potentially game changing reform was the new Monetary Law Act. This legislation was championed by the Central Bank under Indrajit Coomaraswamy, and Mangala supported it to the hilt, even at the tail end of the political cycle. The MLA was designed to provide greater independence to the Central Bank, coupled with accountability measures for the Monetary Board. It would create disciplines around deficit financing (money printing) and establish the legal framework for inflation targeting. These measures would have imposed limitations on some of the most problematic interactions between the monetary and fiscal authorities, that have over the years led to Sri Lanka’s fiscal profligacy, deficit financing, all resulting in ballooning debt and monetary instability. Mangala was not a subject expert, but perhaps his best quality was to listen to the experts and formulate his judgment based on the technical advice that he received. The new Monetary Law Act also did not see the light of day.

2018 Constitutional Coup

It had been a very heavy few weeks in the lead up to the 2019 budget to be presented in early November 2018. The 26th of October was a Friday. The Active Liability Management Bill, a landmark piece of legislation that would allow Sri Lanka to buy back or otherwise manage its lumpy liabilities to smoothen out its repayment obligations, was passed in parliament in the afternoon. This piece of legislation had faced stiff opposition by President Sirisena. We had finished the final draft of the budget speech and had sent it for the final technical annotations. The end of a long week and several long months. As I drove out of the treasury building at around six pm I noticed barricades being hurriedly stacked up near the Presidential Secretariat. I didn’t pay much attention and carried on to catch up with some friends.

About forty five minutes in everyone was getting messages, stating that Mr. Mahinda Rajapaksa is being sworn in as Prime Minister at the Presidential Secretariat. The initial reaction was disbelief since that act would in itself be unconstitutional. I made a couple of phone calls and it was clear something extraordinary was going on so I rushed back to the treasury. Most of the staff was gone by this time but the Minister and a couple of the private staff were still around. Nobody could quite believe what was going on. Having thought things through Mangala wanted to send out a tweet at 8.30pm saying “The appointment of @PresRajapaksa as the Prime Minister is unconstitutional and illegal. This is an anti-democratic coup #LKA.” I asked him if he’s sure he wants to use the word coup. It was a strong word and would have important ramifications. He thought for a few seconds and replied in the affirmative, saying that a coup is exactly what is going on.

The economy took a beating over the subsequent two months. Foreign investors took flight and exited their positions in GoSL rupee denominated treasury securities. Rs. 75 billion worth of foreign investments in government securities was sold in just 2 months, creating massive pressure on the currency, causing the rupee to crash from 172/US$ to Rs. 182/US$ between October and December 2018. The currency was already weak due to the taper tantrum in the early part of the year which hammered all emerging economies. When capital flows started reversing in Q4 and other emerging economies saw a recovery, Sri Lanka was in the midst of the coup and associated capital flight.

During this time the government sold US$ 1 billion worth of reserves in just 1 month as reserves declined from US$ 7.9 billion to US$ 6.9 billion. These were valuable reserves the government had been building up in preparation for the substantial external debt repayments in 2019. More importantly Sri Lanka’s credit rating was downgraded by all three rating agencies in November 2018. On the 30th of November 2018 the yield on the January 2019 ISB had reached 10.7% from 5.6% on 26th October. This meant that Sri Lanka was effectively locked out of global capital markets on the cusp of having to settle over US$ 5.3 billion in debt repayments in 2019, including a US$ 500 million ISB in early January 2019. It was heart breaking for Mangala watching this unfold from the sidelines given all the efforts that he had and the team had taken to keep the economy stable to meet the 2019 debt repayments amidst the global bond market volatility in 2018.

As the economy deteriorated into December it became clear that the adverse impacts of the coup would be long lasting. Due to the sales of US$ 1 billion worth of reserves by the Central Bank, liquidity in the domestic rupee market also reduced dramatically. The market was short LKR 100 billion in the overnight money markets and this pushed up domestic interest rates dramatically as well. Prior to the coup, the 1 year treasury bill was in single digits at 9.5% as at end September 2018, having been at 10.5% when Mangala became Finance Minister. During the coup interest rates shot up to 11.25% by mid-December. The market was LKR 100 billion liquid short till at least April 2019, keeping interest rates elevated and hurting economic growth significantly in 2019. The high interest cost added to Sri Lanka’s debt concerns as well by driving up the cost of domestic debt.

Managing External Debt in 2019

When the Supreme Court verdict came through in 13th December and Mangala returned as Finance Minister, there was a lot of work to be done. Firstly there was no year end budget to authorize payments for 2019, and Sri Lanka had lost access to global capital markets to finance the country’s highest foreign debt repayments in 2019. A quick vote on account was passed by end December, and the next step was to somehow regain access to global capital markets to make sure we can refinance debt repayments. It was unfortunately too late for the January 2019 bond which we had to settle out of the already diminished reserves. Soon afterwards Mangala led a team to Washington to meet with the IMF and re-instate and re-negotiate Sri Lanka’s programme. In spite of Mangala losing his suitcase and D.C. being having a snow day as soon as we arrived, the team met with Christine Lagarde and the technical team led by Manuela Goretti, and after some tough negotiations we were able to set the programme back on track with some important concessions. The external goodwill towards Sri Lanka was palpable, and there was nobody better than Mangala to leverage this to the country’s best advantage.

Over the next two months Mangala had to put together a delayed budget for 2019. This was a particularly tough budget since it was an election year and there were expectations of additional concessions, but at the same time it was critical that the fiscal position would inspire the confidence of global capital markets in order to regain access to external financing. Mangala’s last budget was able to meet both criteria. The March 2019 budget included Programmes such as Gampereliya, a rural infrastructure programme which was seen as a means of providing targeted fiscal impetus to improve cash circulation at the rural level, whilst investing in productive infrastructure leveraging on rural value chains. The enhanced Enterprise Sri Lanka programme was a means of reducing cost of capital, one of the key impediments to SMEs in the country. This was a strategy to provide a targeted reduction in interest rates to productive investments without a general reduction in interest rates. A general reduction in interest rates at the time would have led to an acceleration of capital flight post-coup, and would have further de-stabilized an already volatile external sector. Mangala had some other wonderful ideas in that budget, including providing scholarships for the best performing Advanced Level students to study at any top global university that they qualify for admission.

The budget was also able to satisfy global markets and Sri Lanka regained access to global capital markets. Immediately as the budget was passed, the Central Bank led the process of raising the required International Sovereign Bonds (ISBs) to settle the upcoming debt payments in 2019. However, whilst settling the immediate debt, Mangala and Indrajit Coomaraswamy were also cognizant of the fact that leading into two election years (2019 presidential and 2020 parliamentary), Sri Lanka may face risks in retaining global capital market access to finance debt repayments in 2020 and 2021. Accordingly, Mangala and Indrajit made a conscious decision to raise an additional US$ 2.4 billion dollars worth of ISBs in mid-2019 to build up reserves to US$ 7.6 billion by end 2019 to tide over a volatile couple of years ahead. Whilst today many politicians criticize the previous government’s international sovereign bond strategy, it is the reserves built through the US$ 4.4 billion ISBs raised in 2019 that have been used to settle Sri Lanka’s external debts in 2020 and 2021. Sri Lanka would have already defaulted if not for Mangala and Indrajit’s decision in mid-2019.

True Patriot

There are of course many things that I’m sure Mangala wishes went differently. He wanted to update and upgrade legislation for Customs and Excise — to reduce subjectivity, discretion, and shift to a more rules based framework for both pieces of legislation. He wanted to do move faster on trade reform but the political economy of late stage reform made such intentions difficult to fulfil. He was also keen to invest more in education, health, and reconciliation. He wanted to bring in legislation to address microfinance and informal finance related household indebtedness. There was a lot more than could be done within an interrupted 2 year tenure.

I and many others will miss Mangala not so much for his achievements and efforts as Finance Minister. Nor for his work towards reconciliation from the Sudu Nelum movement to date, for his work in liberalization of the telecom sector in the late 1990s, for his work with the UDA in Colombo’s initial beautification. I will miss a human being of immense courage, who stood for what is right regardless of societal or political compulsions. A man of integrity, conviction, and humility. A patriot in the true sense of the word.

Deshal de Mel Economist based in Sri Lanka



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The Gem and Jewel of Pohottuva governance

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What a gem of a minister he is!

Who?

Who else, State Minister Lohan Ratwatte, the gem and jewel of today.

Why?

He resigned from his Prison Portfolio, not having done anything wrong, as he says it. He has gone beyond the stuff of any politician. He truly deserves to be given the highest regard by the Saubhagya Strategists. Just think of any politician of today, especially from the Pohottuva Team, who will resign from a portfolio for not having done anything wrong, when those who have done so many blatant wrongs, keep glued to their portfolios?

What do you think should follow?

Surely, it is so simple. Get promoted to the Cabinet. Take the “State” off his ministerial title and swear him in as the Minister of Prison Reforms, etc,, and Gem and Jewellery Industry.

Do you think that is the strategy of the Vistas of Prosperity and Splendour of the Gotabaya Politics?

Why not? Promotion, elevation or unearned freedom is the very stuff of today’s Rajapaksa governance. We don’t forget the pardoning of former Staff Sergeant Sunil Ratnayake, convicted with death sentence, for the murder of eight Tamil civilians inlcuding three children, affirmed by the Supreme Court.

Come on. That is just one Saubhagya move.

OK. The next Saubhagya move was the pardoning and release of Duminda Silva, sentenced to death along with four others, over the murder of a rival politician and three others. He has also been appointed the Chairman, National Housing Development Authority.

Keeping with that trend of Saubhagya-Rajapaksa politics and governance, is it wrong to soon promote Lohan Ratwatte as a Cabinet Minister, giving him back the power over all prisons and prisoners, and the gem and jewellery industries, too.

But what about all these complaints about this Lohan man? Flying to the Anuradhapura Prison by helicopter, getting Tamil prisoners held there to kneel before him, holding this revolver against two of them ….

He says he has done nothing like that. He has visited the prison as the minister in charge, and never even touched a Tamil prisoner … Shouldn’t we believe such Ratwatte words? Should we not forget that the first public report on this came from a Tamil MP, Gajendrakumar Ponnambalam. Should we forget how the Ponnambalams have opposed the Sinhala Only politics of Sri Lankan progress?

Then what about all this talk of this Lohan minister’s visit to the Welikada Prison?

 C’mon, why must you believe such gallery nonsense, when there is no report from the Prison authorities?

It is not gallery nonsense, but the Stuff of the Gallows, with a beauty queen or cosmetics queen in his company.

Just remember that he went there too as the Minister of Prisons. As he says, he could go there at any time. That is the power of even a State Minister. The man who stopped the prison from burning, as he says it!

But, what about the gallows, of wanting to show it to his beauty/cosmetics queen?

I’m sure that Lohan R would have seen the opportunity to use the Welikada Gallows as a new tourist attraction.

What tourist attraction?

We are now in the process of reviving tourism, especially from Ukraine and Russia. They may like to see real gallows, and how it functions too. He may have been thinking of adding the Welikada Gallows as a special tourist attraction – where persons sentenced to death could be really hanged. There are many who applied to be hangmen when President Sirisena wanted the gallows to function again. They remain unemployed. Shouldn’t the gallows be revived to give more employment to future hangmen?

Just see the Saubhagya opportunity if the Welikada Gallows is promoted as a tourist attraction. How much would a ticket cost in dollars? Think how this would help Ajith Nivard Cabraal in his new plans to bring in more foreign exchange. This surely is the stuff of Lohan Ratwatte, apart from his continued interest in gems and jewellery.

But, surely didn’t he know that the UNHRC is now in session in Geneva. Has he not known anything about Michelle Bachelet, who is raising questions about Human Rights violations in Sri Lanka?

Now, now, don’t move into unwanted terrain. Human Rights and the Prevention of Terrorism Act are all being handled by Foreign Minister GL Peiris, with punditry of increasing question. You mustn’t try to put Lohan Ratwatte to the same rank of political and diplomatic punditry.

Just remember that Lohan Ratwatte is an elected SLPP – Pohottuva – politician. He is certainly one who likes both Gems and Jewellery. He was ready and fast in giving up Prisons and Prison Reforms, with no charges framed against him. There were only allegations about him, made by a Tamil and other Opposition MPs and such persons. Our system of governance and justice is far removed from what is known as the Rule of Law. It is the Rule of Power.

Let’s forget detainees in prisons (for many years), the so-called reports of a drunken minister with friends and beauty/cosmetic queen, just think of the Rule of Power – just now it is the Power of Lohan and Gotabaya.

When the President received Lohan’s letter of resignation from the Prison Sector, he was not asked to leave the Gem and Jewellery Sector too. He could look after and promote Gems and Jewellery, and remain the stuff of Pohottuva.

This is the Gem and Jewellery line of Rajapaksa Governance. Lohan Ratwatte has displayed his love for gems and jewellery. With his promotion to Cabinet status, will he be known as the “Muthu-menik Lohan Amathi, Sir”?  The true Gem of Pohottuva Politics and Governance!

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The wonder of youth

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By Dr Upul Wijayawardhana

The wonder of youth was best on display in the evening of 11 Sept., when two hugely talented teenagers, both unseeded, gave an amazing display of tennis in vying for the US Open title. Of course, I wanted Emma Raducanu, who represented GB, to win but had lingering doubts as her opponent, Leylah Fernandez was more experienced and had defeated players ranked 3, 16, 5 and 2, to reach the final. This was only the second Grand Slam Emma has played in, having to withdraw during the fourth-round match in Wimbledon due to breathing difficulties which made some wonder whether she had the mental grit to stand the rigours of tough competitions. She proved them wrong in a spectacular manner, reaching the final in an unprecedented way. She had to win three rounds to get into the tournament as a qualifier, and won the next six rounds, reaching the finals without dropping a set in any of the matches. By then, she had missed the return flight to the UK which she had booked as she never expected to be in the competition so long!

Sports are so commercialised that many Brits without Amazon Prime subscription were going to miss seeing the first British woman to play in a Grand Slam final after 44 years. Fortunately, in one of its rare good deeds, Channel 4 paid for screening rights and we could join over 9 million Brits on the edge of their seats for two hours. It was well worth it, as Emma won the final again in straight sets, creating yet another record by being the first qualifier ever to win a Grand Slam! In another rare gesture, Amazon had agreed to donate the fee for advancement of tennis for girls.

Emma Raducanu’s spectacular win was witnessed by Virginia Wade, the first winner of the US Women’s title in the open era in 1968, Arthur Ashe winning the Men’s. She was also the last British woman before Emma to win a Grand Slam; Wimbledon in 1977. Fortunately, Sir Andy Murray was able to break the even longer drought in Male Tennis by winning the US Open in 2012, 76 years after Fred Perry’s 1936 Wimbledon win.

It was very sad that Emma’s parents could not be there in person at the proudest moment of their lives due to quarantine regulations. Whilst shedding a tear of joy for Emma Raducanu’s ‘impossible’ victory, I was saddened to think of the wasted youth in Sri Lanka. How things changed for the worse in my lifetime continues to puzzle me.

We belong to a fortunate generation. We had excellent free education which we made full use of. We had good teachers, not ‘private tuition masters’! We could plan our future as we knew we could get a place for higher education as long as we got the required grades. Our progress in universities was not hampered by student’s unions controlled by unscrupulous politicians with warped thinking. I started my practice of medicine a few months after I turned 23 and was a fully qualified specialist by the time I turned 30. I was not one for sports but did writing and broadcasting. Therefore, I can look back at my youth with a sense of satisfaction.

Unfortunately, we lacked a political class with a vision. Perhaps, this happened because most of the politicians except those at the time of independence took to politics by exclusion than by choice. Lucky politicians got ministries, not because of competence or education, but on the basis of caste, creed, religion, etc. There were no shadow ministers in the Opposition and with the change of government another set of misfits became ministers. For some time, the status quo was maintained by senior administrators who were trained for the job after being selected following a highly competitive examination.

Anti-elite campaigners succeeded. Permanent Secretaries became secretaries and Ministers became permanent as long as they did not upset their bosses! No proper planning was done and the slippery slope started. Then came the terrorists; the JVP destroyed a generation of Sinhala youth and the LTTE destroyed a generation of Tamil youth. Now, there is a greater danger affecting some youth the world over––Islamic extremism.

When I started training postgraduate trainees from Sri Lanka in Grantham Hospital, the first thing I noted was their age and started diplomatically finding out why it had taken them so long to get into PG training. I was shocked at the unwarranted delays they faced which were not due to any fault of theirs. All of them were brilliant but the system had failed them. We need to reinstall discipline so that we have schools and universities functioning properly, ensuring valuable years in life are not wasted.

Perhaps, we need to get out of our insular attitudes. There may be some lessons to learn from studying the background of these two talented players. Leyla Fernandez, born in September 2002 in Quebec, Canada has an Ecuadorian father and a Filipino mother. Emma Raducanu was born in November 2002 in Toronto, Canada but moved to the UK when she was two years, with her Romanian father and Chinese mother. Three months before winning the US Open, she got an A star in Mathematics and A in Economics, in the A level examination whilst attending a state school.

These two teenagers, 23 years old Naomi Osaka, whose father is Haitian and mother is Japanese and 25-years-old Ashleigh Barty, whose father is of indigenous Australian descent and mother is of English descent, joined to form a ‘fab-four in women’s tennis, dawning a new era in tennis as the era dominated by the fab-four; Roger Federer, Rafael Nadal, Andy Murray and Novak Djokovic of the men’s game is drawing to an end. Considering their dexterity, women’s tennis may become more popular than men’s. Who knows!

It is well known that mixing of genes has an enhancing effect. It is also well established that inbreeding leads to many genetic defects. Perhaps, this is another reason why we should get rid of artificial divisions like caste. Although one would have expected that we would have a more enlightened attitude, the matrimonial columns of any newspaper give enough evidence that archaic institutions are still strong.

It is high time we stopped protecting archaic systems and moved forward. This will give an opportunity for the talents of our youth to be displayed and it is our duty to harness the wonder of youth for the advancement of the country.

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A neutral foreign policy in current context

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By Neville Ladduwahetty

During a recent TV interview, the Host asked the Guest whether Sri Lanka’s Foreign Policy is in “shambles”. The reason for the question was perhaps because of the lack of consistency between the statement made by the President and the Secretary to the Foreign Ministry relating to Foreign Policy. For instance, the first clear and unambiguous statement made by the newly elected President during his acceptance speech delivered in Sinhala in the holy city of Anuradhapura in which the only comment in English was that his Foreign Policy would be Neutral. This was followed during his address to Parliament titled: The Policy statement made by Gotabaya Rajapaksa, President of the Democratic Socialist Republic of Sri Lanka at the inauguration of the Fourth Session of the 8th Parliament of Sri Lanka on January 3, 2020, in which he stated: “We follow a neutral foreign policy”.

However, the Secretary to the Foreign Ministry has on different occasions stated that Sri Lanka’s Foreign Policy is “Neutral and Non-Aligned”. Perhaps, his view may have been influenced by the President’s Manifesto, “Vistas of Prosperity and Splendour”, that stated that out of 10 key policies the second was “Friendly, Non-Aligned, Foreign Policy”

The question that needs to be addressed is whether both Neutrality and Non-Alignment could realistically coexist as policies to guide Sri Lanka in the conduct of its relations with other Nation-States. Since neutrality is a defined policy that has a legal basis and has a history that precedes Non-Alignment, there is a need for the Neutral State to conduct its relations with other States according to recognised codified norms with reciprocity. On the other hand, Non-Alignment was essentially a commitment to a set of principles by a group of countries that had emerged from colonial rule and wanted to protect their newly won independence and sovereignty in the context of a bi-polar world. The policy of Non-Alignment therefore, should apply ONLY to the members of the Non-Aligned Movement (NAM). Thus, Non-Alignment, being only a set of principles adopted by a group of like-minded sovereign States to protect and preserve their common self-interests, its conduct in respect of States outside the Non-Aligned Movement becomes unstated and therefore undefined. Neutrality instead is a clear policy that defines how a neutral country such as Sri Lanka conducts its relations with other countries, and how other countries relate with Sri Lanka primarily in respect of the inviolability of its territory.

NON-ALIGNED and the NON-ALIGNED MOVEMENT

A statement dated August 22, 2012 by the External Affairs Ministry of the Government of India on the historical evolution of the Non-Alignment Movement states:

“The principles that would govern relations among large and small nations, known as the “Ten Principles of Bandung”, were proclaimed at that Conference (1955). Such principles were adopted later as the main goals and objectives of the policy of non-alignment. The fulfillment of those principles became the essential criterion for Non-Aligned Movement membership; it is what was known as “quintessence of the Movement until early 1990s” (Ministry of External Affairs, Government of India, “History and Evolution of Non-Aligned Movement, August 22, 2012).

“Thus, the primary objectives of the non-aligned countries focused on the support of self-determination, national independence and the sovereignty and territorial integrity of States; opposition to apartheid; non-adherence to multilateral military pacts and the independence of non-aligned countries from great power or block influences and rivalries; the struggle against imperialism in all its forms and manifestations; the struggle against colonialism, neocolonialism, racism, foreign occupation and domination; disarmament; non-interference into the internal affairs of States and peaceful coexistence among all nations; rejection of the use or threat of use of force in international relations; the strengthening of the United Nations; the democratization of international relations; socioeconomic development and the restructuring of the international economic system; as well as international cooperation on an equal footing” (Ibid).

These commitments did not deter countries such as India from violating the very principles India committed to in Bandung. To start with, India undermined the security of Sri Lanka by nurturing and supporting the training of non-state actors in late 1970s. Having made Sri Lanka vulnerable, India proceeded to coerce Sri Lanka to accept the Indo-Lanka Accord under which India was committed to disarm the militants. Having failed much to its shame, India violated the principle of the right of self-determination when it compelled Sri Lanka to devolve power to a merged North-East Province. All these actions amounted to a complete disregard and the mockery of the lofty principles of NAM undertaken to protect India’s self-interest. What is clear from India’s actions with regard to Sri Lanka is that when push comes to shove, self-interest overrides multi-lateral commitments.

In a similar vein Sri Lanka too, driven by self-interest, voted in support of UK’s intervention in the Falklands because of the debt owed by Sri Lanka to the UK for the outright grant given to construct the Victoria Hydro Power Scheme, although conscious of the fact that by doing so Sri Lanka was discrediting itself for not supporting the resolution initiated by NAM to oppose UK’s actions. These instances demonstrate that Non-Alignment as a Foreign Policy is subservient to self-interest thereby underscoring the fact that it cannot be a clear policy to guide how a State conducts itself in relation to other States.

Commenting on the issues of limitations imposed by being a Member of NAM Shelton E. Kodikara states: “For Sri Lanka as indeed for many of the smaller states among the non-aligned community, membership of the Non-Aligned Movement and commitment to its consensual decisions implied a widening of the institutional area of foreign policy decision-making, and collective decision-making also implied a limitation of the area of choice among foreign policy options…” (Foreign Policy of Sri Lanka, 1982, p. 151).

Therefore, arrangements with common interests such as those by the Non-Aligned Movement (NAM) or Association of Southeast Asian Nations (ASEAN) or any other group of countries with common interests, are mechanisms whose support and solidarity could be sought when needed to advance causes, as for instance when Sri Lanka advanced the concept of making the Indian Ocean a Zone of Peace, and later in 2009 did so in Geneva. Notwithstanding such advantages, the hard reality is that Non-Alignment does not represent a clear statement as to how a State conducts its relations with Nation-States outside the Non-Aligned Movement. Therefore, it follows that Non-Alignment cannot be considered a statement of Foreign Policy by a State.

THE CURRENT CONTEXT

The statement by the Foreign Affairs Ministry of India cited above that the “quintessence” of the principles of the Non-Alignment lasted until early 1990s, was because the bi-polar world that was the cause for the formation of NAM had ceased to exist with the territorial break-up of one of the power blocks – the USSR. Consequently, the USSR lost its influence as a global power. In this vacuum what exists currently is one recognized global power with other powers aspiring to be part of a multi polar world. In the absence of recognized power blocks the need to align or not to align does not arise because Nation-States are free to evolve their own arrangements as to how they conduct their relations with each other. Consequently, the concept of Non-Alignment individually or collectively is a matter of choice depending on the particularity of circumstance, but not as a general Foreign Policy to address current challenges.

With China attempting to regain its lost territory and glory as a civilizational State following its century of shame, the geopolitical matrix has changed dramatically. The economic gains of China the likes of which are unprecedented alarmed the Western world to the point that the US deemed it necessary to adopt a policy of Pivot to Asia thereby making the Indian and Pacific Oceans the focus for great power engagement. This shift of focus has caused new strategic security alliances such as the Quad to emerge to contain the growing influence of China among the States in the Indian and Pacific Oceans. With the Maldives joining India as the latest members of Quad, Sri Lanka has become isolated; a development that has brought Sri Lanka’s location in the Indian Ocean into sharp focus as being of pivotal strategic interest to great and emerging powers.

It is in this newly formed geopolitical context that Sri Lanka has to formulate its Foreign Policy that necessarily must be fresh if Sri Lanka is to equip itself to meet the new challenges created by a coalition of States to contain the rise of China. One option is to join the Quad. This could mean Sri Lanka distancing itself from engaging with China. The other option is to engage with China to the exclusion of the Quad. Either of these options would cause Sri Lanka to lose its independence and the freedom to protect its core values and interests. Therefore, the choice is not to settle for either option.

These unprecedented circumstances and challenges cannot be countered by harking back to the glory days of Non-Alignment, because major influences of the movement (NAM) such as India, have recently abandoned the original principles it subscribed to when it became a part of Quad. Therefore, although NAM still represents a body of likeminded interests with the ability to influence causes limited only to resolutions that further the interests of its members, it is not in a position to ensure the inviolability of the territory and the freedom of a State to make its

A neutral

own hard choices. It is only if a Nation-State proclaims that its relations with other Nation-States is Neutral that provisions codified under the Hague Conventions of 1907 that would entitle Sri Lanka to use the inviolability of its territory to underpin its relations with other Nation-States. Therefore, the Foreign Policy statement as made by the President to Parliament should guide Sri Lanka in its relations with States because it is relevant and appropriate in the geopolitical context that currently exists.

CONCLUSION

The Foreign Policy of a State is greatly influenced by its History and Geography. Historically Sri Lanka’s Foreign Policy has been one of Non-Alignment. Furthermore, Sri Lanka participated in the Conference in Bandung in 1955; a date recognized as the beginning of the Non-Aligned Movement. Thus, although the geographic location of a State is well defined, the significance of its location could dramatically be transformed by geopolitical developments. The staggering economic revival of China from early seventies under the leadership of President Deng Xiaoping whose philosophy was to hide capacity, bide time and never claim leadership, was perhaps the reason for China’s tremendous transformations both economic and social, to proceed relatively unnoticed.

It was only with the announcement of President Xi Jinping’s policy of the Belt and Road Initiative announced in 2013, that the world came to realize that the power and influence of China was unstoppable. This policy resulted in China establishing its footprint in strategically located countries in the Indian and Pacific Oceans by funding and constructing infrastructure projects. Sri Lanka happened to be one such country. The need for the U.S along with India, Australia and Japan to form a security alliance to contain the growing power and influence of China in the Indian and Pacific Oceans was inevitable.

India’s alliance with the US has shifted the balance in Asia causing China to be the stand alone great power in Asia. As far as Sri Lanka is concerned this new dynamic compels Sri Lanka to make one of four choices. One is to align and develop relations with the US and its allies. Second is to align and develop relations with China. The third is be Non-Aligned with either. The fourth and preferred option is to be Neutral not only with the Quad and China, but also with all other States, and develop friendly relations individually with all States.

The policy of Non-Alignment by a State is an external declaration of intent that a nation would not align itself with either a collective or individual center of power such as the Quad or China, in the conduct of its relations. Neutrality by a State, instead, means not only a statement that it would be Neutral when conducting relations with collective or individual centers of power and other States, but also how such a State expects all States to respect its Neutrality; a policy that would be in keeping with Sri Lanka’s unique strategic location in South Asia. Thus, while the former works outwards the latter works both ways. More importantly, how Neutrality works is governed by internationally codified laws that are in place to guide reciprocal relations.

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